Merger brings more cash to China's rural pensions

Merger of retirement schemes brings better benefits to countryside, but meeting obligations may pose challenge for some poorer provinces

PUBLISHED : Monday, 17 February, 2014, 3:57am
UPDATED : Monday, 17 February, 2014, 3:57am

With his 60th birthday fast approaching, Cheng Zhidong decided it was time to finally put his financial future on solid footing.

So three years ago, Cheng, who farms in a rural part of Taizhou, in Jiangsu province, joined the pension scheme. He contributed 1,200 yuan (HK$1,525) the first year and 300 yuan in each of those that followed.

In December, when he hit the official retirement age, he began to receive payments of 80 yuan a month. "It's a good deal. I can get my money back in two years and will also continue to receive payment afterwards," he said.

Cheng's experience is exactly what Beijing wants as it seeks to extend pension coverage to more people, while also reforming the system to make it fairer to all recipients.

The State Council on February 7 announced that it would merge the pension systems for urban and rural residents at the national level and adjust how it subsidised payments for provinces. Fifteen provinces, including Jiangsu, have already merged the two schemes.

Giving rural residents at least some of the advantages city-dwellers enjoy would increase social mobility and address challenges posed by the mainland's ageing population, experts said.

Tuo Guozhu, a professor of insurance at Capital University of Economics and Business in Beijing, said that with a unified policy, local governments would increase payments to rural residents to bring them in line with what urban residents receive.

Currently, the central government covers part of the provincial pension obligations, giving 55 yuan per month to each resident, regardless of where they live.

Beijing covers half of that amount for wealthy provinces such as Jiangsu.

Jiangsu, for instance, has more than nine million pensioners, and payments were expected to reach 10 billion yuan this year. The provincial government should have no problem meeting that obligation, given it reported having revenue of 657 billion yuan last year.

Less-developed provinces, especially in the west, will receive increased assistance from the central government under the new policy. Gansu , for instance, has announced that it will raise the basic monthly payment for each resident to 60 yuan, or five yuan more than last year. As a result, the province's pension obligations will amount to about 169 million yuan a year, or 0.2 per cent of the province's revenue.

"After the unification, the amount of subsidies from the central government will increase," Tuo said. "But even if the figure is doubled, it's still easily affordable [for the central government]."

Beijing last year reported fiscal revenue of more than six trillion yuan and budgeted 62.6 billion yuan for provincial pension subsidies. A doubled pension subsidy equals about 2 per cent of the country's total revenue.

Experts say the 55 yuan a month standard payment, set in 2009, is too low and it should be linked to the economic growth rate or the consumer price index.

"The central government should increase its fiscal transfer to provinces by raising the pension standard," Tuo said.

The mainland pension system has four main subsystems - the rural scheme, the urban scheme for non-employed residents, the urban enterprise pension system, which applies to most workers and the civil service pension system, which covers most employees of government agencies and related governmental bodies. The latest reform unifies the first two subsystems.

"This is the easiest part of China's pension reform, but the meaning is significant," said Wang Xujin, an insurance professor at the Beijing Technology and Business University. "In the future, unification with the urban enterprise pension system would also be gradually put on the agenda."

The most challenging reforms will concern the civil servants. Unlike other subsystems, civil servants are not required to contribute to the pension.

"I doubt if this would be carried out eventually as many government officials are now arguing that it's a global practice to set up independent pension system for civil servants," Tuo said.